GROWING expectations of a further sharp fall in the Australian dollar to as low as US70c are bringing a smile to the nation’s manufacturers, and could help plug the federal government’s haemorrhaging bottom line.
The Commonwealth Bank has slashed its outlook over the next two years, forecasting the dollar to sink to US73c by June next year before rising to US78c the following March.
“The dollar decline is a Christmas bonus for dollar-¬exposed ¬industries such as manufacturing and tourism who are now ¬enjoying the dollar at its lowest level since June 2010, or for some 4½ years,” said Ai Group chief executive Innes Willox.
From its 2014 peak of above US95c, the local currency fell as low as US81.35c this week. The local currency has been victim to an improving economic outlook in the US and in particular sharp falls in the price of Australia’s key exports of iron ore and coal.
“The economic ramification of a decline in Australia’s terms of trade is a contraction in our real domestic income growth, and a somewhat weaker Australian economy,” said Richard Grace, Commonwealth Bank’s chief currency strategist.
The Reserve Bank has called for a lower Australian dollar to help boost Australia’s non--resource exports and make local holidays more appealing. This month, governor Glenn Stevens indicated US75c would be a beneficial level for the economy.
“The lower dollar will also help Australia’s fiscal position by raising the Australian dollar-value of exports and in so doing offset lower commodity prices to some extent,” Mr Willox said.
The government’s updated budget forecasts are predicated on a US84c exchange rate, down from a US93c assumption in the May budget.
Every 1 per cent fall to the trade-weighted index, which measures the Australian dollar against a basket of key currencies, boosted the budget bottom line by $500 million a year, said Chris Richardson, a partner at Deloitte Access Economics.
The US dollar makes up about 10 per cent of Australia’s TWI, which has fallen from about 72 in June to just below 66 yesterday, but they are highly correlated. A fall of US10c in the dollar, as projected by CBA, could improve the government’s budget position up to $5 billion a year as Australian companies’ foreign profits and company tax payments increase in value.
“But the falling dollar does not give instant gratification to some producers, including the many manufacturers who adjusted their business models to protect themselves from the high dollar, such as by importing components,” Mr Willox added.
Separately, the government’s monthly financial statements showed the cash deficit was $24.8bn for the first five months of the financial year.
In May, the government forecast a $29bn deficit for this whole financial year, but now expects a $40.4bn deficit.
Since the dollar was floated in 1983, it has averaged a value of US76c.
This news story is reprinted from www.theaustralian.com.au
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The Commonwealth Bank has slashed its outlook over the next two years, forecasting the dollar to sink to US73c by June next year before rising to US78c the following March.
“The dollar decline is a Christmas bonus for dollar-¬exposed ¬industries such as manufacturing and tourism who are now ¬enjoying the dollar at its lowest level since June 2010, or for some 4½ years,” said Ai Group chief executive Innes Willox.
From its 2014 peak of above US95c, the local currency fell as low as US81.35c this week. The local currency has been victim to an improving economic outlook in the US and in particular sharp falls in the price of Australia’s key exports of iron ore and coal.
“The economic ramification of a decline in Australia’s terms of trade is a contraction in our real domestic income growth, and a somewhat weaker Australian economy,” said Richard Grace, Commonwealth Bank’s chief currency strategist.
The Reserve Bank has called for a lower Australian dollar to help boost Australia’s non--resource exports and make local holidays more appealing. This month, governor Glenn Stevens indicated US75c would be a beneficial level for the economy.
“The lower dollar will also help Australia’s fiscal position by raising the Australian dollar-value of exports and in so doing offset lower commodity prices to some extent,” Mr Willox said.
The government’s updated budget forecasts are predicated on a US84c exchange rate, down from a US93c assumption in the May budget.
Every 1 per cent fall to the trade-weighted index, which measures the Australian dollar against a basket of key currencies, boosted the budget bottom line by $500 million a year, said Chris Richardson, a partner at Deloitte Access Economics.
The US dollar makes up about 10 per cent of Australia’s TWI, which has fallen from about 72 in June to just below 66 yesterday, but they are highly correlated. A fall of US10c in the dollar, as projected by CBA, could improve the government’s budget position up to $5 billion a year as Australian companies’ foreign profits and company tax payments increase in value.
“But the falling dollar does not give instant gratification to some producers, including the many manufacturers who adjusted their business models to protect themselves from the high dollar, such as by importing components,” Mr Willox added.
Separately, the government’s monthly financial statements showed the cash deficit was $24.8bn for the first five months of the financial year.
In May, the government forecast a $29bn deficit for this whole financial year, but now expects a $40.4bn deficit.
Since the dollar was floated in 1983, it has averaged a value of US76c.
This news story is reprinted from www.theaustralian.com.au
Read more details on Brisbane Accountants
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